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Bankruptcy Blog

Automatic Stay in Bankruptcy

by on 3/7/2013

Bankruptcy is a powerful tool, which can be used to protect you from the loss of property. However, in order for it to be effective you need to know how to use the rules to your benefit.

automatic stay protects you from loss of property

Once you file for bankruptcy protection, you fall under an umbrella of protection, known as the automatic stay [11 USC 362]. This protection starts the moment you file your case. So any actions to collect a debt must stop until this “stay” is removed.

The automatic stay is not “automatic” in all cases. For example if you have had two prior cases dismissed in the prior twelve months you do not get an automatic stay, and instead have to ask the court for it [11 USC 362(c)(3)&(4)]. If you have had one case dismissed in the prior year, you only get the protection for 30 days, unless you get the court to extend it beyond the 30 days.

The automatic stay also does not apply to the following (only listing the more common situations):

1.       Criminal prosecution

2.       Most family law matters

3.       Suspension of certain licenses

4.       Interception of tax refunds

5.       Certain medical obligations

6.       Tax audit or assessment

7.       Continued repayment of a loan against a retirement policy

8.       Foreclosure when relief was granted in a prior case under 362(d)(4)

9.       Eviction, when the landlord obtained a judgment prior to filing

The complexity of when a stay applies or does not apply requires an experienced attorney. Often times a bankruptcy is filed to stop some actions, such as a garnishment, repossession, or foreclosure. Setting up a trust is another way to protect you from loss of property by placing your assets under the watch of another party for a predetermined period of time. It is important to get help from a professional to make sure your bankruptcy filing and trust creation actually accomplishes what you are trying to do.

The stay will remain in effect until either the court removes it based on a request or certain time periods end. In a Chapter 13 the debtor is planning on reorganizing the debt, so the plan will usually dictate when certain stays will end, assuming a party in interest does not ask the court for relief from the stay sooner. In a Chapter 7 the stay as to actions against certain real or personal property goes away about 75 days after the case is filed [11USC 362(h) & 524(a)].